Drug Competition Means Big Savings

June 30, 2015

Competition for some of the priciest drugs may soon be coming to a pharmacy near you. The new development has to do with "biologics," which are drugs produced in living systems such as plant and animal cells or microorganisms.

Biologics treat some of the most serious diseases, and they are typically very expensive. Because of the way they are made, competing drug manufacturers can't precisely replicate them -- there's no such thing as a "generic" version. There are, however, highly similar substitutes known as "biosimilars," writes Widener University economics professor Joseph Fuhr.

For the first time, the FDA has done just that, approving Sandoz's Zarzio, which will compete with Amgen's Neupogen, a drug that treats a side effect of chemotherapy. What benefits can consumers expect from this competition?

There are lessons in the Hatch-Waxman Act, a 1984 law that essentially did for generics what the new law does for biosimilars. Consider:

By 2013, generics accounted for around 86 percent of dispensed retail prescriptions.

Consumers saved over one trillion dollars in the period from 2002 to 2011.

Generic price competition decreased prices by 80 to 90 percent.

Overall medical costs were lowered since drugs decrease the need for medical services such as emergency-room visits, hospitalization, and operations.

To be sure, the market for biosimilars is different in some ways. Since development and manufacturing costs are higher for biosimilars than for generics, biosimilar competition will probably bring smaller price cuts, at least in percentage terms. A RAND study estimated savings from biologics over the next decade will be over $44 billion.

Fuhr notes that with the FDA's first biosimilar approval, the future for bringing lower-cost drugs to patients is very bright. Consumers will see tremendous benefits from biosimilar competition.